SRA Issues New Warning Notice in relation to Advising On Investment Schemes

On 17 August 2020, the SRA issued a warning notice stating that solicitors need to be vigilant when it comes to providing advice on investment schemes. The notice is an update on a pre-existing notice, which was first published in June 2017.

The notice states, amongst other things, that solicitors must watch out for:

  • “Transferring funds through their client account, without the transactions being connected to any underlying legal work
  • Doing no real legal work and legal fees are being generated when they are not necessary
  • Dubious or risky schemes being presented as routine conveyancing or investment in “land” when the reality is very different
  • Schemes labelled as for example mini-bonds, but are in fact speculative investments promising a high return and the buyers’ money is not being used in the way the seller it says it will.”


What are solicitors’ responsibilities regarding advising on investment schemes?

Solicitors rely on Part 20 of the Financial Services and Markets Act 2000 (FSMA) or under regulation by the Financial Conduct Authority (FCA) when advising clients on the benefits and risks of an investment scheme. Solicitors run the risk of professional misconduct if they continue to act or provide advice on an investment scheme they recognise as suspicious. They must make reasonable enquiries to satisfy themselves that the transactions they are involved in are not fraudulent or could potentially take advantage of the buyer.

What did the SRA report on dubious investment schemes uncover?

The warning notice follows an SRA report on dubious investment schemes. The report found that the types of questionable investment schemes which solicitors can become involved with include :

  • “Buyer-led developments or refurbishments (eg off-plan)
  • Fractional developments (eg rooms, spaces or units within wider schemes)
  • Alternative investments (eg precious metals, fine wines)
  • Complex financial products (eg loans, shares, bonds)”


The report also highlighted that solicitors were often instructed to help founder, set up or administer the dubious scheme (in order to add credibility) and firms with a turnover of £500,000 were more likely to be targeted. Overseas investors and the elderly are the most likely to be pursued as buyers by fraudulent operators.

It was found that some solicitors did not act in the best interests of buyers and/or conduct adequate due diligence on dubious investment schemes. Concerning due diligence: in 63% of past cases satisfactory due diligence had not been carried out and in one in five cases, no due diligence was carried out on the scheme at all.

The regulator stated that in the last five years, they have taken 48 solicitors and two law firms to the tribunal. This has resulted in 16 strike offs, eight suspensions and £870,000 worth of fines.

Paul Philip, SRA Chief Executive, said in a press release:

“Dubious investment schemes result in very significant financial losses for consumers and we will continue to take robust action where we find solicitors are involved. While most solicitors would never willingly participate in such schemes, those that do, whether knowingly or not, lend a veneer of credibility which sellers can exploit to help persuade people that their offer is legitimate. Not only does that harm those who buy into these schemes, it undermines confidence in the profession as a whole.

“Our new review looks at the types of schemes we are seeing, what sort of firms get involved and how that happens. It sets out how schemes change and who they target. We are also publishing an updated Warning Notice. In my view, these are required reading for all firms.

“Importantly, we know that dubious scheme operators look at the warnings we and other regulators issue and adapt accordingly. Solicitors must never be complacent – stay up to date, do your due diligence and if in any doubt, do not get involved.”

Final words

The SRA is clearly concerned about the number of solicitors neglecting to conduct suitable due diligence on investment schemes they advise on. As the financial crisis brought on by the Covid-19 pandemic increases, sadly, there are likely to be more vulnerable people for fraudsters to take advantage of. Therefore, it is imperative that solicitors are alive to dubious investment schemes to ensure susceptible members of society are protected.

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